Russia’s efforts to improve its investment climate have produced mixed results. On one hand, the Russian market presents many promising investment opportunities, and 2010 witnessed a number of significant investments by major U.S. firms. Russia has taken concrete steps, including efforts to attract capital to the planned Skolkovo Innovation Center and to improve government coordination and oversight regarding the protection of foreign and domestic investors. Russia recognizes foreign investment’s critical role in the country’s economic development and has encouraged foreign investment by establishing special economic zones, high-technology parks, and special tourist regions on both federal and regional levels. At the same time, despite the Russian government’s public rhetoric on combating corruption and improving the investment climate, independent organizations assessed that overall business and investment conditions in Russia worsened slightly in 2010.

Russia was one of the countries most adversely affected by the financial crisis starting in 2008, with 2009 GDP dropping by 7.9%. Russia’s economy grew modestly in 2010: in January 2011 the government released a preliminary estimate of 3.8% annual growth. Russia’s real GDP is expected to reach 2008 levels in late 2011. From 2004-2008, foreign direct investment (FDI) inflows picked up substantially, rising to $75 billion in 2008. But because of the economic crisis, FDI inflows decreased to $36.8 billion in 2009 and have improved little, if at all, in 2010. In December, Prime Minister Putin predicted that annual FDI in Russia would reach $40 billion for 2010. However, according to the Central Bank of Russia, FDI inflows for the first three quarters of 2010 equaled $23.4 billion, a 9.8% decrease from the same period of 2009. The last few years have also seen large amounts of capital leaving Russia. In 2008, Russia experienced a net capital outflow of $133.9 billion. In 2009, Russia’s net capital outflow was $56.9 billion. In 2010, capital has continued to leave Russia, but at a much slower pace. In January 2011, the Central Bank of Russia estimated that the net capital outflow in 2010 was $38.3 billion.

President Medvedev and Prime Minister Putin have repeatedly emphasized the importance of improving Russia’s business climate and attracting foreign capital, particularly in the high technology sector. The country’s solid base of experts in the scientific and mathematics fields, combined with a sizable market and an economy growing faster than most others in Central Europe, have helped entice a series of U.S. firms to make headline acquisitions and investments in Russia. Nevertheless, the investment climate has been undermined by the slow pace of structural reforms and the government’s leading role in certain sectors of the economy, notably energy. Additionally, past government actions have contributed to a sense of wariness among some foreign investors about the risks of the Russian market, such as the apparently politically-motivated investigations into businesses and a reluctance to allow foreign investors de facto unfettered access. Rule of law, corporate governance, transparency, and respect for property rights are gradually improving but remain key concerns for foreign investors. While Russia took significant steps in 2010 to improve the legal framework for intellectual property protection, effective enforcement remains a challenge. Possible liabilities associated with existing operations (especially environmental cleanup) and still-developing bankruptcy procedures are also factors in the decision to invest. In short, while there is strong interest, many U.S. companies, particularly small and medium-sized enterprises, remain cautious about investing in Russia.

A legal structure is in place to support foreign investors, although the laws are not always enforced in practice. The 1991 Investment Code guarantees that foreign investors will enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership (discussed below). The 1999 Law on Foreign Investment also affirms this principle of equal treatment. Unfortunately, corruption plays a sizeable role in the judicial system (see the Dispute Settlement section). Moreover, Russia has sought to enhance consultation mechanisms with international businesses, including through the Foreign Investment Advisory Council, regarding the impact of the country’s legislation, regulations, and dispute mechanisms on the business and investment climate. Still, the country’s investment dispute mechanisms remain a work in progress, and at present can result in a non-transparent, unpredictable process.

Russian government officials have repeatedly stressed the need for foreign investment and technology transfer in the manufacturing sector to facilitate Russia’s successful economic recovery after the financial crisis and as part of Russia’s modernization effort. At the same time, the government adopted new policies to more effectively control foreign investments in so-called “strategic sectors” of the Russian economy. In May 2008, then-president Putin enacted the Strategic Sectors Law,” which grandfathered already completed acquisitions, specified 42 activities that have strategic significance for national defense and state security, and established an approval process for foreign investment in these strategic areas. According to the law, investors wishing to increase or gain ownership above certain thresholds need to seek prior approval from a government commission headed by Russia’s Prime Minister. From the passage of the law through the end of 2010, the commission met eight times to review investment proposals – including three times in 2010 – and only rarely denied a proposed transaction. But foreign investors fear that the approval process might be non-transparent and burdensome, and that the law could be used to restrict foreign investors seeking to invest in Russia’s strategic sectors.

Russia’s government also tends to favor direct cash injections and joint ventures with local entities, especially state-owned entities, and particularly in Russia’s “strategic sectors.” The energy sector is the most prominent of these; the government typically limits foreign companies to minority stakes in larger projects. In December 2008, Prime Minister Putin signed a resolution that increased the duty on most imported vehicles from 25% to 30%, increased the duty on large off-road mining vehicles from 5% to 25%, and imposed a prohibitive duty on cars older than five years. In February 2009, temporary duties ranging from 5% to 15% were imposed on agricultural and mining vehicles for a period of nine months. These duties were extended for another nine months in November 2009, and on January 1, 2010 were transferred to the Common Customs Tariff of the Customs Union, thus becoming effectively permanent. These duties remain in place despite having been perceived originally as a means of helping local manufacturers weather the financial crisis. In one related area, duties have been reduced: in October 2010 the CU issued a decision to decrease the import tariff on large off-road trucks from 25% to 15%. There were also significant reductions in tariffs on certain types of short and long haul aircraft. For a number of types of aircraft, the tariff was reduced from 20% to 0%. Less critical sectors, such as consumer products, are relatively unrestricted.

Between 2003 and 2010, the share of Russia’s private sector in GDP decreased from 70% to 65%, according to the European Bank for Reconstruction and Development. The government also continues to hold significant blocks of shares in many privatized enterprises. In an effort to both increase market forces in the economy and raise revenue for the federal budget, in 2009 the government began considering the privatization of so-called strategic enterprises. On October 17, 2010 the Russian Cabinet approved the 2011-2013 Privatization Plan, paving the way for selling an estimated $60 billion of government stakes in more than 850 companies. The GOR will retain controlling stakes, however, in major Russian companies such as Rosneft, Russian Railways, and banking giants Sberbank and VTB.

To date, treatment of foreign investment in new privatizations has been inconsistent. As with the 2011-2013 Privatization Plan, foreign investors participating in Russian privatization sales are often confined to limited positions. As a result, many have faced problems with minority shareholder rights and corporate governance. Potential foreign investors are advised to work directly and closely with appropriate local, regional, and federal ministries and agencies that exercise ownership and other authority over companies whose shares they may want to acquire.

The following tables include the most recent data from indices measuring the investment and business climate in Russia:

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange. Finding a bank licensed to conduct foreign currency transactions is not difficult. Russia has no capital controls and there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital. Nonetheless, investors would be well advised to seek expert advice at the time of an investment.

Currency controls exist on all transactions that require customs clearance, which in Russia applies to both import and export transactions and certain loans. A business must open a "deal passport" with the Russian authorized bank through which it will receive and service the transaction or loan. A deal passport is a set of documents that importers and exporters provide to authorized banks. Such documents enable banks, the agents of Russian currency control, to monitor payments in respect of the transaction or loan and to report the corporation’s compliance with currency control regulations to the Central Bank. Russia’s regulations regarding deal passports are described under Instructions of the Central Bank of Russia number 117-I of June 15, 2004.

Only authorized banks may carry out foreign currency transactions. According to currency control laws, the Central Bank retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account. The Central Bank does not require security deposits on foreign exchange purchases.

Expropriation and Compensation

The 1991 Investment Code prohibits the nationalization of foreign investments, except following legislative action and where deemed to be in the national interest. Such nationalizations may be appealed to the courts of the Russian Federation, and the investor must be adequately and promptly compensated. At the sub-federal level, expropriation has occasionally been a problem, as has local government interference and a lack of enforcement of court rulings protecting investors.

Dispute Settlement

Russia has a body of conflicting, overlapping, and rapidly changing laws, decrees and regulations, which has resulted in an ad hoc and unpredictable approach to doing business. In an attempt to address these challenges, in 2010 First Deputy Prime Minister Shuvalov was tasked with coordinating and overseeing efforts to improve the business and investment climate, including the protection of foreign and domestic investors. The government has also encouraged international business leaders to participate in the discussion of dispute resolution mechanisms, as well as individual commercial disputes, as part of their work in the Foreign Investment Advisory Council. While these steps offer some promise, overall the country’s investment dispute mechanisms remain underdeveloped and largely non-transparent.

Independent dispute resolution in Russia can be difficult to obtain since the judicial system is still developing. Courts are sometimes subject to political pressure. According to numerous reports, corruption in the judicial system is widespread and takes many forms, ranging from bribes of judges and prosecutors to fabrication of evidence. A law enacted in late 2008 as part of President Medvedev’s anti-corruption initiative requires that, beginning in April 2010, judges must disclose their incomes, real estate assets, and other kinds of property that they and their spouses and minor children own. The law also includes a provision permitting media to request some of this information about the judge, but not about the judge’s spouse or children. While this represents a step in the right direction, it is too early to assess the law’s impact.

Another component of President Medvedev’s anti-corruption initiative has been a series amendments to the Code of Criminal Procedure – in 2008, 2009, and 2010 – to limit pre-trial detention of individuals accused of economic crimes. While these measures clearly represent a step in the right direction, uneven implementation to date has limited the impact of the reforms.

The heavy caseload of Russian judges and their lack of training adversely affects timely and effective recourse in business disputes. In order to get through the regular caseload on a daily basis, many judges may quickly dismiss a case for technical reasons, such as lack of complete documentation or missing parties to the dispute. This helps the judge reduce his docket for the day, but ends up delaying adjudication of many cases to a later date. Also, many lawyers report that due to insufficient training, especially in complex business disputes, many judges often make poorly reasoned or simply incorrect decisions.

In addition, court decisions are at times not executed. The bailiffs, who are charged with enforcing court judgments, report to the Ministry of Justice rather than the courts. They sometimes fail to enforce those judgments due inter alia to legal restrictions and limited trained personnel. Federal Law 262 requires the courts since mid-2010 to publish their decisions online and otherwise make information about their activities publicly available. Commercial courts, in which most business disputes are resolved, had largely been meeting this requirement even prior to enactment of the law. While some questions remain about whether certain information can be withheld from publication due to privacy concerns, the law is expected to increase court transparency.

Many attorneys refer Western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. A 1997 Russian law allows foreign arbitration awards to be enforced in Russia, even if there is no reciprocal treaty between Russia and the country where the order was issued. Russia is a member of the International Center for the Settlement of Investment Disputes and accepts binding international arbitration. Russia is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, enforcement of international arbitral awards still requires action from Russian courts and follow-up by bailiffs, which have yet to become consistently effective enforcers of court judgments.

Commercial disputes between business entities are heard in the commercial court system. That court system has special procedures for the seizure of property before trial, such that it cannot be disposed of before the court has heard the claim, as well as for the enforcement of financial awards through the banks. Additionally, the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry will hear claims if both parties agree to refer disputes there. A similar arbitration court has been established in St. Petersburg. As with international arbitral procedures, the weakness in the Russian arbitration system lies in the enforcement of decisions.

Performance Requirements and Incentives

Performance requirements are not generally imposed by Russian law and are not widely included as part of private contracts in Russia. However, they have appeared in the agreements of large multinational companies investing in natural resources and in production-sharing legislation. There are no formal requirements for offsets in foreign investments. Since approval for investments in Russia frequently depends on relationships with government officials and on a firm's demonstration of its commitment to the Russian market, this may result in offsets in practice.

The Russian government requires visas and residence permits for businessmen and investors. Work and residence permits must be renewed periodically -- a cumbersome process. Russia’s visa system for residence and work permits is complicated, and potential investors would be well-advised to consult the State Department and U.S. Embassy websites for the latest information on Russian visas: moscow.usembassy.gov/russian-visas.html and travel.state.gov/travel/cis_pa_tw/cis/cis_1006.html. In some sectors, requirements that a certain percentage of staff be Russian citizens may have a negative impact on foreign investors. As part of Russia's efforts to encourage investment in innovation sectors, the GOR has eased the regulations on visas and residence permits for "highly-skilled" workers, and eliminated yearly quotas in this category. The definition of highly-skilled is base on a salary range (currently about $60,000 per year and above) and not specifically defined skills.

Right to Private Ownership and Establishment

Both foreign and domestic legal entities may establish, purchase, and dispose of businesses in Russia. Foreign investment in some sectors that are regarded as affecting national security, such as natural resources, energy, power, communication, transportation, and defense-related industries, may be limited.

Protection of Property Rights

The Constitution and a 1993 presidential decree give Russian citizens general rights to own, inherit, lease, mortgage, and sell real property. Foreigners enjoy similar rights with certain restrictions, notably the ownership of farmland and areas located near federal borders. The rights of Russian citizens to own and sell residential, recreational, and garden plots are clearly established, with over 40 million properties of this type under private ownership. Mortgage legislation enacted in 2004 facilitates the process for lenders to evict homeowners who do not stay current in their mortgage payments. Thus far this law has been successfully implemented and generally effective. Mortgage lending is in its initial stages, and after a sharp contraction in 2008-09, the total value of mortgages in Russia is still under 3% of GDP. New mortgage issuances in 2010, both by number and volume, were more than double that in 2009, totaling more than $11 billion.

In Russia, the protection of intellectual property rights (IPR) is enforced on the basis of civil, administrative, criminal or customs legislation. The Civil Code sets up the level of compensation for IPR infringement and/or incurred damages for copyright, trademarks and geographical indications. The Code of Administrative Offenses concerns IPR infractions which violate public or private interest or rights, but do not meet the criteria of the Criminal Code. An administrative investigation may be initiated at the request of an IPR owner or by law enforcement authorities (police or customs) suspecting possible IPR infringement. Administrative cases are dealt with by general jurisdiction courts or state commercial courts that have jurisdiction over economic disputes. The IPR provisions of the Criminal Code apply to infringements of copyright, patent and trademark rights committed on a large scale and causing gross damages as defined by the Criminal Code.

In 2010, Russia made significant progress in improving the legislative environment and legal framework for IPR protection. Russia passed amendments to Part IV of the Civil Code for compliance with the Trade-Related Aspects of Intellectual Property (TRIPs) agreement, amended its Customs Code to include ex-officio authority for Russian Customs officials, and amended the Law on Circulation of Medicines to provide for 6 years of regulatory data protection upon WTO accession. Concerns remain, however, over enforcement issues such as deterring piracy and counterfeiting through criminal penalties, lowering the monetary damages threshold to initiate criminal penalties, the lack of Internet-related IPR enforcement (including ISP liability and regulations for takedown notices), and the need for a court system with greater expertise in IPR cases.

Copyright violations (films, videos, sound recordings, and computer software) remain a serious problem. Legitimate DVD sales are on the rise, however, thanks in part to cheaper legitimate products, a growing consumer preference for high quality goods, and increased law enforcement action against pirates. The local business and entertainment software industries have also reported declining levels of piracy. Russian police continue to carry out end-user raids against businesses using pirated products. At times, police have used IPR enforcement as a tactic to elicit bribes or harass NGOs.

Russia has acceded to the Universal Copyright Convention, the Paris Convention, the Berne Convention, the Patent Cooperation Treaty, the Geneva Phonogram Convention, and the Madrid Agreement. Topologies of integrated microcircuits are protected by Russian law, whereas computer programs have the same level of protection as literary works. The copyright term is “Life + 70.” In 2008, Russia applied to join the World Intellectual Property Rights Organization (WIPO) Copyright Treaty and the Performance and Phonograms Treaty, and ratified the two treaties in early 2009. Russia also ratified the Singapore Treaty on the Law of Trademarks in 2009, and in 2010 completed steps to implement the Treaty.

Russia has had a law providing for bankruptcy of enterprises since the early years after the breakup of the Soviet Union. New legislation that would introduce a system of individual (personal) bankruptcy or insolvency has been drafted, and is expected by many observers to be enacted. Individual bankruptcy cases would be handled by the commercial courts.

President Medvedev has repeatedly and publicly encouraged the more widespread adoption of alternative dispute resolution (ADR) to help courts handle their caseloads and to provide citizens with speedier and cheaper methods of resolving legal disputes. In July 2010, he signed a law that authorizes the use of mediation in various kinds of disputes, including commercial ones, and provides for the confidentiality of mediation proceedings and for their enforceability in court. The law took effect on January 1, 2011. Although there are still issues concerning how it will be applied, it represents an important step towards further development of ADR in Russia.

Transparency of the Regulatory System

The legal system in Russia remains in a state of flux, with various parts of the government continuing to implement new regulations and decrees on a broad array of topics, including the tax code and requirements of other regulatory and inspection bodies. Negotiations and contracts for commercial transactions, as well as due diligence processes, continue to be complex and protracted. Investors must do careful research to ensure that each contract fully conforms to Russian law. Contracts must likewise seek to protect the foreign partner against contingencies that often arise. Keeping up with legislative changes, presidential decrees, and government resolutions is a challenging task. Uneven implementation of laws creates further complications; various officials, branches of government, and jurisdictions interpret and apply regulations inconsistently and the decisions of one may be overruled or contested by another. As a result, reaching final agreement with local political and economic authorities can be a long and burdensome process. Companies should be prepared to allocate sufficient funds to engage local legal counsel to set up their commercial operations in Russia.

Surveys have shown that many entrepreneurs complain about the complexity of the tax code and requirements of other regulatory and inspection bodies. Well-intentioned small and medium-sized enterprises (SMEs) often go out of their way to follow the law but are then penalized for making mistakes in documentation. They complain that the tax police make no distinction between overt tax-evaders and inexperienced SMEs who do not fully understand the bookkeeping requirements. Companies often have little recourse other than the courts to resolve tax disputes. While firms have successfully appealed to the courts, tax authorities are often slow to implement judicial decisions. Penalties for non-compliance include confiscation of property and freezing a company's bank accounts. A 2010 law greatly increased the criminal threshold of tax underpayment, forbade pre-trial detention for tax offences, and allowed first-time offenders to escape criminal liability for a tax offence if they pay their arrears during the pre-trial investigation.

All draft laws that go through the Russian Duma are published on the Duma’s website. Sometimes, but not consistently, ministries and other Russian government bodies also publish proposed legislation (including draft laws, government decrees and regulations) on their websites. While there is opportunity for public comment, the general perception is that this opportunity is limited and that it can have minimal impact.

Efficient Capital Markets and Portfolio Investment

The Russian banking system remains relatively small, with RUR 4.6 trillion ($148 billion) in aggregate capital as of November 1, 2010. Though Russia has roughly 1000 banks, the sector is dominated by state-owned banks, particularly Sberbank and VTB. The five largest banks in Russia are state-owned. In 2009, state-owned banks held 39.2% of all bank assets in Russia. While 2010 figures are not yet available, that figure has likely increased, as most private banks in Russia have been reluctant to expand their loan books in the current economic environment. The successful implementation of the Deposit Insurance System in 2004 has proved a critical psychological boon to the banking sector, evidenced by growth in overall deposits. Despite measured progress, the Russian banking system is not yet efficiently performing its basic role of financial intermediary (i.e., taking deposits and lending to business and individuals). Even before the financial crisis, the combined value of the assets of Russia’s top 200 banks was just over $1 trillion, and only a quarter of Russians had any kind of a bank account. Russia’s banking sector is recovering from the economic crisis, with 2010 loan growth expected to reach 10-15%. The share within Russia’s banking sector of non-performing and troubled loans, which during the financial crisis some analysts said could reach as high as 40%, appears to have stabilized in 2010 at around 20%.

Russia’s two main stock exchanges are in Moscow: (1) the Russia Trading System (RTS), and (2) the equity trading floor on the Moscow Interbank Currency Exchange (MICEX). Trading volume is largely dominated by large oil and gas companies such as Gazprom, Rosneft, and Lukoil. Trading activity at Russia’s other exchanges, such as the Moscow Stock Exchange and several regional centers, is low. Some large Russian companies choose to list their stock in London and elsewhere abroad in order to obtain higher valuations.

The Law on the Securities Market, as amended in 2003, includes definitions of corporate bonds, mutual funds, options, futures, and forwards. Companies offering public shares are required to disclose specific information during the placement process, as well as quarterly. In addition, the law defines the responsibilities of financial consultants who assist companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders.

The ruble-based bond market is currently the most rapidly and dynamically developing sector in Russia's capital markets. The Central Bank’s large injection of liquidity into the Russian economy during the 2008-09 financial crisis contributed to the growth of the domestic bond market, both in corporate and government bonds. That growth is also boosted by weaknesses in other sectors of the capital market: the absence of more attractive ruble-denominated alternative asset classes; low and even negative real interest rates on the secondary government securities market; and a significant volume of rubles from oil export earnings.

Steady development notwithstanding, the corporate bond market suffers several problems. It is still quite narrow, which makes it difficult to provide the necessary level of liquidity for relatively small issues, even if the issuer is a blue-chip company. Another problem is the expense of preparation, including development of each issue's parameters, prospectus registration, underwriting services, etc. A 0.8% issuance tax adds to that expense. Another barrier to the growth of the market is a provision of the federal law "On Joint Stock Companies", which requires that the volume of a bond issue not exceed a company's authorized (charter) capital.

Hostile takeovers are also common in Russia; however, both foreign and local firms are targeted. Private companies’ defenses to prevent hostile takeovers target all potential hostile takeovers, not just foreign ones.

Russia’s financial market suffers from a shortage of private domestic institutional investors. For example, the life insurance market is miniscule, comprising only 3% of insurance premium payments. Private pension funds, held back by a public distrust of financial instruments and a lack of tax incentives, make up just 2% of financial assets in Russia, equal to 2% of GDP.

Competition from State-Owned Enterprises

Despite large-scale privatizations, the eight existing state corporations still play a large role in the Russian economy. (Note: State corporations are 100% owned by the Russian government and operate under special legislation. The Russian economy also features thousands of other companies owned in part or whole by the Russian government that operate under different legal arrangements, such as unitary enterprises and joint stock companies) While private enterprises are technically allowed to compete with state corporations on the same terms and conditions, in practice, the playing field is tilted. State corporation holding structures and management arrangements (e.g., state representatives as board members) make it difficult for private enterprises to compete. Furthermore, specific legal constructions can result in preferential treatment of state corporations. For example, state corporations have no unified legal framework, being set up under different legislation than that which applies to other corporations; this case-by-case approach leaves much scope for discretion and lobbying by company insiders.

According to the European Bank for Reconstruction and Development, the private sector’s share of GDP fell from 70% in 2003 to 65% in 2010. As discussed above, the Russian government approved the 2011-2013 Privatization Plan, which aims to sell an estimated $60 billion of government stakes in more than 850 companies.

Corporate governance of state corporations is characterized by the “dual management” model. The Federal Agency for State Property Management (Rosimushchestvo) is authorized by the Russian government to exercise shareholder rights for federally-owned shares in companies and is responsible for the preparation and nomination of candidates at the annual meetings of shareholders. As a general rule, Rosimushchestvo nominates to a company’s board of directors representatives of the most relevant government body, based on the sectoral characteristics of the business. The sectoral state body thus participates in managing the company through its representatives. In important companies that straddle the sectoral priorities of the government and its political interests, top government officials may be nominated to the boards of directors (e.g., the Minister of Energy is the Chairman of the state-owned oil pipeline company, Transneft). Issues that hamper the efficient operations of state corporations include a lack of transparency, unclear responsibilities of boards of directors, misalignment of managers’ incentives and company performance, inadequate control mechanisms on managers’ total remuneration or their use of assets transferred by the state to the state corporation, and reduced disclosure requirements.

There are two sovereign wealth funds in Russia: the Reserve Fund and the National Wealth Fund. Management of both funds’ assets is executed by the Ministry of Finance in accordance with procedure and terms established by Government of the Russian Federation. The Central Bank of Russia may act as operational manager.

Reserve Fund assets can be used to: purchase foreign currencies (dollars, euros, and pounds) that are then kept in the Federal Treasury’s accounts with the Central Bank of Russia, which in turn pays interest on those deposits; and/or purchase financial assets denominated in foreign currencies. The list of eligible financial asset classes is determined by Russian legislation. Ministry of Finance guidelines for Reserve Fund asset allocation are foreign (12 OECD countries) government debt instruments - 95%, international financial institutions’ (a closed list of 9) debt instruments – 5%. The National Wealth Fund can be held in foreign currencies (dollars, euro, and pounds) in the Federal Treasury’s accounts with the Bank of Russia, which pays interest on them according to bank account agreement. The National Wealth Fund can also be used to purchase financial assets denominated in Russian rubles and eligible foreign currencies. The Reserve Fund and National Wealth Fund are audited by the Chamber of Accounts of the Russian Federation and the results are reported to both Houses of the Federal Assembly. In 2009 and 2010, the Russian government tapped into both funds heavily to finance bail-out programs for major banks and industries during the global economic crisis.

Corporate Social Responsibility (CSR)

Over the last decade, globalization and the rapid expansion of large Russian companies’ presence in international markets have led to a new approach to corporate social responsibility. While there is still little pressure from Russian consumers and shareholders for businesses to change their ways, contact with peers, investors, and customers overseas has led these companies to focus more on their reputations and those of their brands.

The Federal Service for Financial Markets has had a corporate governance code in place since 2002 and has endorsed an OECD White Paper on ways to improve practices in Russia. International business associations such as the American Chamber of Commerce in Russia, the U.S.-Russia Business Council, the Association of European Businesses in Russia, and the International Business Leaders Forum, as well as Russian business associations such as OPORA, the Russian Managers Association, the National Council on Corporate Governance, and the Russian Directors’ Institute stress corporate governance as an important priority for their members and for Russian businesses overall.

When seeking to acquire companies in Western countries or raise capital on international financial markets, Russian companies face international competition and in-depth scrutiny. Whether or not a company adheres to certain CSR standards can affect its bottom line. Consequently, most large Russian companies currently have a policy or strategy for CSR in place or are developing one. Additionally, there has been a trend toward greater transparency with regard to Russian firms’ CSR policies, and many of these policies are now published on corporate Web sites and detailed in annual reports. These CSR policies and strategies, however, are still in an early stage relative to those of Western counterparts. Some corporate CSR strategies are a legacy of the social infrastructure managed by certain enterprises during the Soviet period. Even today, the Russian government remains the most powerful stakeholder in the development of certain companies’ CSR agendas, resulting in the expectation that these companies support local health, educational and social welfare systems as specified by the government.

Russian business associations such as the Russian Union of Industrialists and Entrepreneurs (RSPP), Delovaya Rossiya, the Public Organization for Small and Medium Enterprises (OPORA), and the Russian Managers Association, stress CSR and promote CSR initiatives and standards for their members and for Russian businesses overall. For example, in 2004 RSPP developed the Social Charter of Russian Business. In a subsequent update, it was recognized as being in agreement with the standards set out in the UN Global Compact. Today more than 200 Russian companies and organizations have joined the Charter.

Political Violence

Although the use of strong-arm tactics is not unknown in Russian commercial disputes, the Embassy is not aware of cases where foreign investments have been attacked or damaged for purely political reasons. Russia continues to struggle with an ongoing insurgency in Chechnya, Ingushetiya and Dagestan. These republics and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping.

Corruption

Corruption continues to grow in Russia and its pervasiveness is acknowledged regularly both by Russia’s highest officials and society at large. As such, corruption remains a major problem for businesses and investors in Russia. According to Transparency International (TI), Russia scored 2.1 out of 10 this year, down from 2.2 in 2009. This year’s Corruption Perceptions Index, released on October 26, ranked Russia 154th out of 178nations surveyed, far below its 2004 ranking (90th place). In PricewaterhouseCoopers’ 2009 Global Economic Crime Survey, Russia came in last place among the 54 countries surveyed, with 71% of respondents having reported experiencing incidences of fraud in the 12 months previous to the survey.

The NGO Information Science for Democracy (INDEM) continues to assert, as estimated in a 2009 report by that organization, that bribes and corruption annually cost Russia the equivalent of one-third of its GDP. In November, President Medvedev announced that Russia is losing up to a trillion rubles (approximately $33 billion) annually due to corruption in its state purchases system. Nevertheless, there have been few prosecutions and/or dismissals of high-level corrupt officials that would send a clear deterrent message.

The Government of Russia has repeatedly designated the fight against corruption and the enforcement of law as priorities. Russia is a signatory to the UN Convention against Corruption and to the Council of Europe’s Criminal Law Convention on Corruption. Neither President Medvedev’s Council for the Fight Against Corruption, which was established in the spring of 2008, nor the anti-corruption legislation of December 2008 have yet been effective in reducing corruption. Insofar as the legislation is concerned, implementing regulations have not yet been drafted. Moreover, Transparency International – Russia, a Russian affiliate of the international network, has reported that the enforcement of most anti-corruption legislation to date is weak or non-existent. Russia is developing legislative amendments that could create the conditions for Russia’s future accession to OECD’s Anti-Bribery Convention.

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements.

OECD Anti-Bribery Convention: The OECD Anti-Bribery Convention entered into force in February 1999. As of December 2010, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. Russia is currently drafting legislation to create the conditions for Anti-Bribery Convention accession. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-Bribery Convention through the U.S. FCPA.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 148 parties to it as of December 2010 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-Bribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Russia became a signatory in 2003, and completed ratification in 2006.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2010, the OAS Convention has 33 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html). Russia is not a party to the OAS Convention.

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to, inter alia, corrupt acts, whistleblower protection, and validity of contracts. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 48 member States (46 European countries and the United States). As of December 2010, the Criminal Law Convention has 43 parties and the Civil Law Convention has 34 (see www.coe.int/greco). Russia is a party to the Criminal Law Convention on Corruption and GRECO; it is not a party to the Civil Law Convention.

Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. There is no free trade agreement between Russia and the United States. Russia is in discussions, however, with certain OECD members on developing free trade agreements. Russia in 2010 agreed to begin negotiations on such agreements with New Zealand and the European Free Trade Association.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of a company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

· Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

· General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

· Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr. Transparency International-Russia also posts corruption-related research materials and findings on the following sites, all specific to Russia: www.transparency.org.ru and www.askjournal.ru.

· The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 213 economies, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.

· The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See htttp://www3.weforum.org/docs/WEF_GlobalEnablingTrade_Report_2010.pdf.

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

Russia has concluded bilateral investment treaties (BITs) with 69 countries, and 54 of them are in force. In 2010, Russia signed a BIT with Singapore and ratified its BITs with Angola, Libya, Namibia, Nigeria, and Turkmenistan. Russia also ratified an investment treaty with EurAsEC in 2010. Additionally, in 2009 Russia signed “BITs” with the Georgian regions of Abkhazia and South Ossetia, the latter of which came into force in 2010. The United States and Russia currently have not signed a BIT, although both sides have expressed interest in discussing such an agreement. The United States and Russia do not have a bilateral taxation treaty, and there has been no discussion of negotiating one. There is some concern that taxation requirements have sometimes been used in Russia as a way to "raid" or illegally take possession of foreign companies, particularly small and medium enterprises.

OPIC and Other Investment Insurance Programs

In an agreement ratified in 1992, the U.S. Overseas Private Investment Corporation (OPIC) was authorized to provide loans, loan guarantees (“financing”), and investment insurance against political risks to U.S. companies investing in Russia. OPIC’s political risk insurance and financing help U.S. companies of all sizes invest in Russia. OPIC insures against three political risks: expropriation; political violence; and currency inconvertibility. To meet the demands of larger projects in Russia and worldwide, OPIC can insure up to $250 million per project and up to $300 million for projects in the oil and gas sector with offshore, hard currency revenues. Projects in the oil and gas sector with offshore, hard currency revenues may be approved for an exposure limit up to $400 million if the project receives a credit evaluation (“shadow rating”) of investment grade or higher. The individual per project exposure limit for financing is $250 million. The maximum combined (insurance and financing) exposure limit to OPIC on a single project is $400 million. OPIC has no minimum investment size requirements. OPIC also makes equity capital available for investments in Russia by guaranteeing long-term loans to private equity investment funds. Detailed information about OPIC’s programs can be accessed at www.opic.gov. Russia is a member of the Multilateral Investment Guarantee Agency.

Labor

The Russian labor market remains fragmented, characterized by limited labor mobility across regions and consequent wage and employment differentials. At the beginning of 2010, after the economy started to show signs of recovery from the 2008-09 financial crisis, the unemployment rate as defined by the International Labor Organization still hovered around 9%. By October, however, unemployment had fallen to 6.8%. Traditional, seasonal fluctuations will lead to mild increases into the beginning of 2011.

Employers complain about the low quality of applicants’ skills and labor shortages outside of urban centers. This is due in part to weak linkages between the education system and the labor market. In addition, the economy suffers from a general shortage of highly skilled labor. Employers in regions outside Moscow and St. Petersburg contend with a dearth of available workers. Businesses in these areas are increasing their labor costs as competition over a limited pool of workers intensifies, particularly in the agriculture sector. On the other hand, a large number of inefficient enterprises with high vacancy levels offer workers unattractive, uncompetitive salaries and benefits.

The government did not register any strikes in the first eleven months of 2010 (note: information for December was not available at the time of this report). Independent commentators, however, noted 102 protests during that period, including 44 that involved the complete or partial cessation of work. The majority of labor disputes occurred in the manufacturing sector, particularly in machine-building enterprises. Disputes were also common in the transportation and metallurgy sectors. The primary causes of labor disputes were wage arrears, layoffs, and company reorganization or closure.

Approximately 45% of Russia’s workforce is unionized. The GOR generally adheres to ILO conventions protecting worker rights, though enforcement is often lacking. In 2009, the Constitutional Court annulled the Labor Code provision that required employers to consult with a union’s central leadership before dismissing elected local union leaders. In 2010, the State Duma amended the Law on Professional Unions in accordance with this decision. Simultaneously, however, the Duma ratified ILO Convention No. 135, which guarantees workers' representatives protection against any act prejudicial to them, including dismissal, based on their status or activities as a workers’ representative, union membership, or participation in union activities.

The 2002 Labor Code governs labor standards in Russia. When adopted, it was meant to diminish the role of the government in setting and enforcing labor standards, with trade unions playing a role in representing workers' interests. However, there are no clear enforcement mechanisms for an employer’s failure to engage in good faith collective bargaining. Revisions to the Labor Code since 2002 have included new procedures for investigating industrial accidents and the requirement that businesses employing more than 50 workers must establish a work safety division and create a position for a “work safety specialist.” The enforcement of worker safety rules continues to be a major issue, as enterprises are often unable or unwilling to invest in safer equipment or to enforce safety standards.

Foreign Trade Zones/Free Ports

To date, nineteen Special Economic Zones (SEZs) have been established pursuant to legislation passed in 2005. These SEZs fall in one of four categories: industrial and production zones (Lipetsk Region, Republic of Tatarstan, Samara, Yekaterinburg Region); technology and innovation zones (St. Petersburg, Moscow, Moscow Region, Tomsk); tourist and recreation zones (Kaliningrad Region, North Caucasus Federal District, Stavropol Region, Altai Region, Irkutsk Region, Russkiy Island, as well as in the constituent republics of Altai and Buryatia); and port zones (Ulyanovsk airport and Murmansk and Khabarovsk seaports). In December 2010, the GOR also issued a decree establishing the new “Titanium Valley” industrial SEZ located near rich titanium deposits in the Yekaterinburg Region.

Enterprises operating within SEZs enjoy a range of benefits that the Ministry of Economic Development (MED) – which manages the SEZ program – estimates can save investors up to 30%. Specifically, investors are subject to streamlined administrative requirements and procedures, a more favorable customs regime (including the waiver of import duties and refunds of the value-added-tax), and reduced tax rates on income, property, land, and transport. SEZ investors also receive cut rates on infrastructure expenses, including facilities and utilities costs.

The SEZs are developing gradually, with the majority of investments still listed as “planned.” Detailed information about the benefits and results of Russia’s SEZs can be found at the MED’s SEZ website: http://www.economy.gov.ru/minec/activity/sections/sez/main/.

Independently of the SEZs, in 2010 President Medvedev launched an initiative to establish an “innovation city” in the town of Skolkovo in the Moscow suburbs to promote investment in high-technology startup businesses, research, and commercialization of technological innovation. Inspired by the model of Silicon Valley, Skolkovo is projected to be similar to an SEZ with a broad array of incentives for resident companies. Those incentives include complete exemption from profit tax, value-added tax, property taxes, and import duties, and partial exemption from social fund payments. Applicants for residency are evaluated and selected by an international admission board. At the end of September 2010, Russia enacted a set of laws to regulate Skolkovo, defining and codifying the benefits associated with it. As of December 2010, several international corporations have made public commitments to invest in Skolkovo, but no companies are yet resident there. However, the government has extended benefits temporarily to non-resident companies until at least 2014.

Foreign Direct Investment Statistics

Table 1 shows flows of foreign investment by country for the first nine months of 2010, compared to the same period in 2009. Total foreign investment declined by 13.2% in the first nine months of 2010, compared to the same period in 2009. According to Russian statistical practice, total foreign investment numbers include direct investment (FDI), portfolio investment, and other investment (largely trade credits). This year, the largest share of foreign investment came from Germany. FDI from the Netherlands and Cyprus is consistently high because most FDI coming from these two countries is either returning or reinvested Russian capital through subsidiaries or off-shore vehicles. (Note: The data in the tables below are from the Russian State Statistical Service (RosStat) and may differ from data maintained by the Central Bank of Russia and the U.S. Department of Commerce.)

Table 1: Top Ten Investors - By Year (in USD million)

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Country

Jan-Sept. 2010

Jan-Sept. 2009

Total

FDI

Total

FDI

Germany

7,520

1,095

5,507

1,635

Netherlands

7,507

943

8,348

1,066

Cyprus

5,635

1,912

5,231

2,092

UK

4,240

430

4,231

317

France

2,098

735

1,600

537

China

1,494

N/A

N/A

N/A

Luxembourg

1,258

N/A

8,905

N/A

Ireland

1,229

N/A

595

N/A

USA

862

222

1,279

92

Japan

818

N/A

1,641

N/A

All Others

14,827

2,136

16,272

2,884

Total

47,488

8,196

54,738

9,975

The numbers in Table 2 represent an accumulated stock of total foreign investment, which include FDI, portfolio, and “other” investment as of September 30, 2010 compared to the amount, accumulated by the same date in 2009.

Table 2: Top Investors - Accumulated Basis (in USD million)

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Country

As of Sept. 30, 2010

As of Sept. 30, 2009

Total

FDI

Total

FDI

Cyprus

57,600

40,377

47,042

31,195

Netherlands

44,184

22,790

49,426

29,172

Luxembourg

32,228

652

37,947

1,039

Germany

22,656

8,332

19,811

7,420

UK

18,899

3,449

25,622

3,641

China

10,543

931

N/A

N/A

Ireland

9,467

477

9,240

433

Japan

8,897

816

6,989

801

France

8,211

2,874

8,516

2,066

USA

7,346

3,259

7,608

2,790

All Others

45,923

26,199

42,749

21,323

Total

265,954

110,156

262,394

104,101

Source: Federal Service for State Statistics (RosStat)

Table 3 shows total foreign investment by region over the first nine months of 2010, compared to the same period in 2009. Moscow continues to attract the largest volume of investments (33.3% of total foreign investment), mainly due to the concentration of companies' headquarters and the largest concentration of consumers with high purchasing power.

Table 3 – Foreign Investment – Top Regions (in USD million)

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Jan-Sep 2010

Jan-Sep 2009

Amount

%

Rank

Amount

%

Rank

Moscow (city)

15,816

33.3%

1

28,211

51.6%

1

Tatarstan

4,057

8.5%

2

1,568

2.9%

6

St. Petersburg

3,723

7,8%

3

3,044

5.6%

2

Sakhalin

3,611

7.6%

4

2,488

4.5%

4

Moscow Region

2,725

5.7%

5

2,793

5.1%

3

Chelyabinsk Region

2,472

5.2%

6

1,905

3.5%

5

Rostov Oblast

1,066

2.2%

7

530

1.0%

15

Sverdlovsk Oblast

1,049

2.2%

8

1,001

1.8%

9

Kaluga Oblast

928

2.0%

9

984

1.8%

10

Samara Region

779

1.6%

10

613

1.1%

14

Others

11,263

23.7%

11,599

21.2%

Total

47,488

100%

54,738

100.0%

Source: Federal Service for State Statistics (RosStat) (Note: Includes direct, portfolio, and other investment.)

Table 4 shows investment by sector over the first nine months of 2010, compared to the same period in 2009. Total investment in such sectors as trade, transport and communications, and real estate fell by 30%-50%, while other sectors, such as extraction of fuel, production of coke and oil products, metallurgy and chemical industry, became higher investment growth sectors in the first nine months of 2010, compared to the same period in 2009.

Table 4: Foreign Investment: Top Sectors (in USD million)

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